Noah and Joan Arc's Tax Return

Note: This problem is divided into three parts. You will need to complete some of the forms in the other parts in order to determine the amounts to be used on Form 1040. Some of the data information will be reproduced in the other parts for convenience.

Update:The final QBI deduction Regulations indicate that the SE tax deduction is to be incorporated into the computation of QBI.

Noah and Joan Arc live with their family in Dayton, OH. Noah's Social Security number is 434-11-3311. Noah was born on February 22, 1984, and Joan was born on July 1, 1985. Both enjoy good health and eyesight. Noah owns and operates a pet store and Joan is a firefighter for the city of Dayton.

1. The Arcs have two children, a son named Billie Bob (Social Security number 598-01-2345), born on March 21, 2012, and a daughter named Mary Sue (Social Security number 554-33-2411), born on December 3, 2015. They received a statement from Roundup Day Care Center (located on a separate tab) regarding the cost of child careprovided for Mary Sue.

2. Joan and Noah brought a folder of tax documents (seeForms W-2and1098). In addition, they received a Substitute 1099 Statement from Charlotte Squab Financial Services (located on a separate tab) regarding their stock transactions for the year.

3. Noah's pet store is located at 1415 S. Patterson Blvd, Dayton, OH 45409. The name of the store is ''The Arc,'' and its taxpayer identification number is 95-9876556. Since you handle Noah's bookkeeping, you have printed the income statement from your Quick books software, shown in the table below:

The Arc

95-9876556

Income Statement

For the Year Ended December 31, 2019

Revenue:

Gross Sales $143,245.00

Less: Sales Returns and Allowances 0.00

Net Sales $143,245.00

Cost of Goods Sold:

Beginning Inventory $10,204.00

Add: Purchases 62,111.00

$72,315.00

Less: Ending Inventory 9,987.00

Cost of Goods Sold62,328.00

Gross Profit (Loss)$80,917.00

Expenses:

Dues and Subscriptions $0.00

Estimated Federal Tax Payments 8,000.00

Estimated State Tax Payments 4,000.00

Insurance780.00

Meals and Entertainment 1,338.00

Miscellaneous0.00

Payroll Taxes3,840.00

Professional Fees1700.00

Rent 8,400.00

Travel 1,231.00

Utilities1,254.00

Vehicle Expenses 0.00

Wages 25,113.00

Total Expenses55,656.00

Net Operating Income $25,261.00

4. Detail of The Arc's meals and entertainment:

$400 Meals associated with business travel

$60 Overtime meals for employees

$878 Sports tickets for entertaining large customers

$1338

5. Travel costs are business related and do not include meals.

6. Noah and Joan paid the following amounts during the year (all by check):

Political contributions $250

Church donations $5,025

(for which a written acknowledgment was received)

Real estate taxes on their home 2,375

Medical co-pays for doctor visits 700

Mortgage interest for purchase of home (See Form 1098)

Tax return preparation fees 350

Credit card interest 220

Automobile insurance premiums 600

Uniforms for Joan 125

Contribution to Noah's individual retirement account 6,000

(made on April 1, 2020)

7. Noah has a long-term capital loss carryover from last year of $2,400.

8. Noah and Joan own a condo, and use it as a rental property. The condo is located at 16 Oak wood Ave, Unit A, Dayton, OH 45409. Noah provides the management services for the rental including selection of tenants, maintenance, repairs, rent collection, and other services as needed. On average, Noah spends about 2 hours per week on the rental activity. It was rented for 365 days. The revenue and expenses for the year are as follows:

Rental income $13,800

Insurance 575

Interest expense6,870

Property taxes 1,016

Miscellaneous expenses 700

The home was acquired for $85,000 in 2003. No improvements have been made to the property.

9. The Arcs paid Ohio general sales tax of $976 during the year.

Required:

You are to prepare the Arc's federal income tax return in good form. You are not to complet an Ohio state income tax return.

Substitute 1099 statement from Charlotte Squab Financial Services to Joan and Noah Arc:

Charlotte Squab Financial Services

123 Wall Street

New York, NY 10005

Dividends:

Box 1a Box 1b Box 2a Box 4 Box 7 Box 11

Payer Ordinary Dividends Qualified Dividends Capital Gain Distribution Federal Income Tax withheld Foreign Tax Paid Tax-exempt

dividends ExxonMobil 312.00 312.00 0.00 0.00 0.00 0.00

Texas Util. 1188.00 1188.00 0.00 0.00 0.00 0.00

CS Growth 418.00 418.00 245.00 0.00 19.00 0.00

Fund

Stock Transactions:

Description Date Acq. Date Sold Proceeds Basis (reported to IRS)

100 shs. Blue Corp. 02/11/2009 08/15/2019 4,537.00 2,576.00

50 shs. Yellow Corp. 01/13/2019 06/05/2019 6,090.00 5,345.00

25 shs. Red Co. 10/02/2010 10/07/2019 12,212.00 1,655.00

ROUNDUP DAY CARE CENTER

245 N. WILKINSON STREET

O VOID CORRECTED RECIPIENT'S/LENDER'S name, street address, city or town, OMB No. 1545-1380 state or province, country, ZIP or foreign postal code, and Mortgage telephone no. 2019 Interest Chase Mortgage Statement 100 Park Avenue Form 1098 New York, NY 10017 1. Mortgage interest received from payer(s)/borrower(s) Copy C to 11,100.00 RECIPIENT'S/LENDER'S TIN PAYER'S/BORROWER'S | 2 Outstanding mortgage 3 Mortgage origination date For Recipient/ TIN principal Lender 13-4296127 434-11-3311 $ 274,200.00 03/13/2010 For Privacy Act Refund of overpaid interest 5 Mortgage insurance and Paperwork premiums Reduction Act $ $ Notice, see the PAYER'S/BORROWER'S name 2019 General Noah and Joan Arc 6 Points paid on purchase of principal residence Instructions for Certain Information Street address (including apt. no.) 7 X If address of property securing mortgage is the same as Returns. 1265 W. Riverview Avenue PAYER'S/BORROWER'S address, check the box, or enter the address or description in box 8. City or town, state or province, country, and ZIP or foreign postal 8 Address or description of property securing mortgage (see code instructions) Dayton, OH 45402 9 Number of properties securing the 10 Other 11 Mortgage acquisition date mortgage Account number (see instructions) Form 1098 www.irs.gov/Form 1098 Department of the Treasury - Internal Revenue Servicea Employee's social security number Visit the IRS website at 456-87-5432 OMB No. 1545-0008 Safe, accurate, FAST! Use IRS e ~ file www.irs.gov/efile b Employer identification number (EIN) 1 Wages, tips, other compensation 2 Federal income tax withheld 33-4382966 30,240.00 5,120.00 c Employer's name, address, and ZIP code 3 Social security wages 4 Social security tax withheld 30,240.00 1,874.88 City of Dayton Fire and Rescue 5 Medicare wages and tips 6 Medicare tax withheld 123 Warren Street 30,240.00 438.48 Dayton, OH 45402 7 Social security tips 8 Allocated tips d Control number 9 10 Dependent care benefits e Employee's first name and Last Suff. 11 Nonqualified plans 12a See instructions for box 12 initial name DD 12,200.00 Joan Arc 13 Statutory Retirement Third-party sick 12b employee plan pay 1265 W. Riverview Ave. 0 X 0 20 0 Dayton, OH 45402 14 Other 12c 0 2 0 0 12d f Employee's address and ZIP code 16 State wages, tips, 18 Local wages, tips, 19 Local income 20 Locality 15 State Employer's state ID 17 State income etc tax name number etc. tax HO 1126-87021 30,240.00 1,850.00